P3.

1
Financial Planning is the process of creating strategies to help you manage organizations finances in order to meet goals. It is a complicated matter that all rational and capable organization must one day begin to pursue. Financial Planning consists of four primary steps: Creating Financial Planning Objectives. Developing plans that will fulfill these objectives. Creating a budget by which the assets will be obtained. Review and revision of the financial plan.

The Financial Planning Objectives can be further divided into 6 sections.

Financial planning is a long-term process that can help secure the financial future of an organization. Financial Planning is the process of organizing information for making decisions about the future financial plans. Comprehensive financial planning is a long-term course of action that can help provide financial security. Also, with the right strategies, organization can build up a healthy nest egg. . The output from financial planning takes the form of budgets. The most widely used form of budgets is Pro Forma or Budgeted Financial Statements. The foundation for Budgeted Financial Statements is Detail Budgets. Detail Budgets include sales forecasts, production forecasts, and other estimates in support of the Financial Plan. Collectively, all of these budgets are referred to as the Master Budget. The following steps are involved in the business financial planning process. The steps involved may vary by company, and some professionals may only be involved in some of the steps depending on their positions within the company.

1. Determine Current Financial Situation

Current data is gathered, including sales, costs, and expenses for the last 6 to 12 months. Depending on the type of business this may be by product line (or by product) in a manufacturing business, or by service or job in other industries. As an example in Ceylinco insurance, we can calculate whole sales of insurances in last 12 months and we can get the idea about current situation.

This should be an assessment of how your customers, partners, competitors and suppliers view the business. It should answer the question where are we now? It should also be a honest and self-critical

exercise trying to answer the important questions any businesspersons should be asking our selves regularly: What are our important strengths and main weaknesses? What can we do well and what should we not be doing at all? What are the major mistakes we have made in the past and what can we learn from them? Do we make a reasonable number of mistakes? 2. Gathering data, including goals. The financial planning information about the current financial situation which we have done above. The client and the planner should mutually define clients personal and financial goals, un derstand clients time frame for results and discuss, if relevant, how he feels about risk. The financial planner gathers all the necessary documents before giving needed advises to the client

3. Analyzing and evaluating financial status.

In financial plan we should analyze your information to assess current situation and determine what should do to meet goals. Depending on what services we have asked for, this could include analyzing our assets, liabilities and cash flow, current insurance coverage, investments or tax strategies. 4. Evaluate Alternatives

We need to evaluate possible courses of action, taking into consideration current economic conditions. Consequences of Choices. Every decision closes off alternatives. For example, a decision to invest in stock may mean we cannot take a vacation. A decision to go to school full time may mean we cannot work full time. Opportunity cost is what you give up by making a choice. This cost, commonly referred to as the trade-off of a decision, cannot always be measured in cash. Decision making will be an ongoing part of your personal and financial situation. Thus, we will need to consider the lost opportunities that will result from your decisions. Evaluating Risk Uncertainty is a part of every decision. Selecting a college major and choosing a career field involve risk. What if we dont like working in this field or cannot obtain employment in it? Other decisions involve a very low degree of risk, such as putting money in a savings account or purchasing items that cost only a few cash. our chances of losing something of great value are low in these situations. In many financial decisions, identifying and evaluating risk is difficult. The best way to consider risk is to gather information based on our experience and the experiences of others and to use financial planning information sources. Financial Planning Information Sources Relevant information is required at each stage of the decision-making process. Changing personal, social, and economic conditions will require that you continually supplement and update your knowledge.

5. Create and Implement a Financial Action Plan

In this step of the financial planning process, we develop an action plan. This requires choosing ways to achieve your goals. As we achieve organizations immediate or short-term goals, the goals next in priority will come into focus. To implement our financial action plan, we may need assistance from others. For example, we may use the services of an insurance agent to purchase property insurance or the services of an investment broker to purchase stocks, bonds, or mutual funds.

6. Reevaluate and Revise Plan

Financial planning is a dynamic process that does not end when we take a particular action.

Organization need to regularly assess your financial decisions. Changing environmental, political, social, and economic factors may require more frequent assessments.

As an example we shall asset about Ceylinco PLCs financial planning process.

The Group primarily is involved in the business of underwriting all classes of General Insurance, Life Insurance, Healthcare services, Fund management and Power Generation. All companies in the Group are limited liability Companies incorporated and domiciled in Sri Lanka except one subsidiary which is incorporated and domiciled in the Republic of Maldives. Recognition and measurement (Determine Current Financial Situation) Items of property, plant and equipment is stated at cost or valuation less accumulated depreciation. Cost includes expenditure that is directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the asset to a working condition for its intended use, and the costs of dismantling and removing the items and restoring the site on which they are located. Purchased software that is integral to the functionality of the related equipment is capitalized as part of that equipment. Borrowing costs related to the Depreciation methods, useful lives and residual values are reviewed at each reporting date. Statement of Compliance (Gathering data) The consolidated and separate nancial statements have been prepared in accordance with Sri Lanka Accounting Standards (SLAS), and the requirements of the Companies Act No. 07 of 2007 and the Regulation of Insurance Industry Act No. 43 of 2000. The formats and disclosures are also in accordance with the Statement of Recommended Practice for Insurance Contracts (SORP), adopted by the Institute of Chartered Accountants of Sri Lanka (ICASL). Basis of measurement The nancial planning process has been prepared on the historical cost basis except for the following:

Investment property is measured at fair value Land and buildings are stated at revalued amounts Notional Tax credit is measured at present value Use of Estimates and Judgments (Evaluate Alternatives) The preparation of nancial statements in conformity with SLASs requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgments about the carrying amount of assets and liabilities that are not readily apparent from other sources. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected. Transactions eliminated on consolidation Inter group balances and transactions, and any unrealized income and expenses arising from intergroup transactions, are eliminated in preparing the consolidated nancial statements. Unrealized gains arising from transactions with equity accounted investees are eliminated against the investment to the extent of the Groups interest in the investee. Unrealized losses are eliminated in the same way as unrealized gains, but only to the extent that there is no evidence of impairment. Investments (Create and Implement) (i). Investments in Government Securities Investments in Treasury Bills and Treasury Bonds are stated at cost and interest income accrued up to the year end. (ii). Securities Purchased under Re-sale Agreements These are advances collateralized by purchased treasury bills and treasury bonds subject to an agreement to re-sell them at a predetermined price. Such securities remain on the balance sheet of the company and the asset is recorded in respect of the consideration paid and interest accrued there on. (iii). Investment in Shares and Debt Instruments Debt instruments, quoted and unquoted investments are held on a long term basis and are stated at cost. Provision for diminution in

value is made when in the opinion of the Directors there has been a decline, other than temporary, in the value of the investment. Short term investments are measured at lower of cost and market value on an aggregate portfolio basis. Investment property is property held either to earn rental income or for capital appreciation or for both, but not for sale in the ordinary course of business, or for administrative purposes. Investment property is measured at fair value with any change therein recognized in prot or loss. Intangible Assets (Evaluating Risk ) Intangible assets that are acquired by the Group, which have nite useful lives, are measured at cost less accumulated amortization and accumulated impairment losses. Defined Benefit Plans The Company makes contributions monthly (14% and 15% of employees by Life division and General Division respectively) to a non-contributory defined benefit plan that pays Gratuity for employees upon retirement. The Plan entitles a retired employee to receive a payment equal to the last drawn monthly salary multiplied by the number of years of service by the employee.

Source file: Ceylinco PLC , Annual report

P3.1
Financial objectives focus on achieving acceptable profitability in a companys pursuit of its mission/vision, long-term health, and ultimate survival. Financial objectives signal commitment to such outcomes as good cash flow, creditworthiness, earnings growth, an acceptable return on investment, dividend growth, and stock price appreciation.

The following are examples of financial objectives:

Growth in revenues Growth in earnings Wider profit margins Bigger cash flows Higher returns on invested capital Attractive economic value added (EVA) performance Attractive and sustainable increases in market value added (MVA) A more diversified revenue base

Strategic Market Objectives Strategic market objectives focus on the companys intent to sustain and improve the organizations competitive strength and long-term market position through creating customer value. Strategic objectives focuses on winning additional market share, overtaking key competitors on product quality or customer service or product innovation, achieving lower overall costs than rivals, boosting the companys reputation with customers, winning a stronger foothold in international markets, exercising technological leadership, gaining a sustainable competitive advantage, and capturing attractive growth opportunities. Strategic objectives need to be competitor-focused and strengthen the companys longterm competitive position. A company exhibits strategic intent when it pursues ambitious strategic objectives and concentrate its competitive actions and energies on achieving that objective. The strategic intent of a small company may be to dominate a market niche. The strategic intent of an up-and-coming company may be to overtake the market leaders. The strategic intent of a technologically innovative company may be to create a new product. Small companies determined to achieve ambitious strategic objectives exceeding their present reach and resources, often prove to be more formidable competitor than larger, cash-rich companies with modest strategic intents.
few examples of initiatives that commonly appear in strategic plans:

Improve sales by 20% Raise profit margins by 2.5% Grow EBITA by 12% over previous year

In Ceylinco group we can see their following strategies; Foreign currency transactions Transactions in foreign currencies are translated to the functional currency of Group entities at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate at that date. The foreign currency gain or loss on monetary items is the difference between the cost in the functional currency at the beginning of the period adjusted for payments during the period and the cost in foreign currency translated at the exchange rate at the end of the period. Foreign currency differences arising on retranslation are recognized in prot or loss. Earnings per share

The Group presents basic earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the pro t or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period. The following are examples of strategic objectives:

A bigger market share Quicker design-to-market times than rivals Higher product quality than rivals Lower costs relative to key competitors Broader or more attractive product line than rivals A stronger reputation with customers than rivals Superior customer service Recognition as a leader in technology and/or product innovation Wider geographic coverage than rivals Higher levels of customer satisfaction than rivals

Operational planning Well-implemented strategic planning provides the vision, direction and goals for the organization, but operational planning translates that strategy into the everyday execution tactics of the business that will ultimately produce the outcomes defined by the strategy. Operational planning is the conversion of strategic goals into execution. The key components of a complete Operational Plan include analyses or discussions of: Human and Other Capacity Requirements The human capacity and skills required to implement organizations targets, and r current and potential sources of these resources. Also, other capacity needs required to implement your project (such as internal systems, management structures. Financial Requirements The funding required to implement organizations cash flow potential sources of these funds, and most critical resource and funding gaps. Risk Assessment and Mitigation Strategy What risks exist and how they can be addressed. Estimate of organizations Lifespan, Sustainability, and Exit Strategy How long the organization will last, when and how we will exit the project (if feasible to do so), and how we will ensure sustainability of our organizations achievements.

Organizational strategy Organizational strategy is concerned with envisioning a future for organizations business, creating value in the eyes of your customers, and building and sustaining a strong position in the marketplace. The first critical strategy element is Vision, Mission and Competitive Advantage, which describe the business a company is in, it's current and long term market objectives and the manner in which it differentiates itself from the competition.

Focused Purpose o Clearly defining short-term purpose o Ensuring mission is realistic o Serving the best interests of all stakeholders o Defining a point of differentiation Future Perspective o Clearly defining long-term outlook o Appealing to the long-term interests of the organizations stakeholders o Providing a foundation for decision-making Strategic Advantage o Competitive advantage is a key driver to forming an organizational strategy o Competitive advantage is clearly understood by all stakeholders o Employees clearly understand how their role supports the company's organizational

strategy Second key strategy element is External Assessment, which reflects an organization's approach to gathering and analyzing essential market data. Included in this data are developing competitive profiles, studying macro and micro economic information, identifying industry opportunities and threats, and understanding what it takes to be successful in a given market.

Customer Profile o Clearly defining reasons why customers buy products or services o Clearly defining benefits that customers seek o Clearly defining reasons why customers would not buy products or services o Assessing customer bargaining power o Knowing customer preferred choice of distribution channel Industry and Competitive Analysis Is Essential Component of Organizational Strategy o Identifying primary competitors o Identifying potential and indirect competitors o Clearly defining strengths, weaknesses and strategies of competitors o Assessing the threat of substitute products or services or new entrants into the marketplace o Understanding what it takes to be successful in a given market o Comparing customer growth rate with industry standards o Ongoing market evaluation process Environmental Assessment o Defining and clarifying regulatory requirements

Assessing vulnerability to adverse business cycles Summarizing opportunities and threats due to: Economic conditions New technology Demographic structure Legal or political events The natural environment Socio-cultural norms Key Success Factors Are Identified With a Critical Thinking Process o Implementing a critical thinking process o Clearly measuring competitive intensity o Clearly defining product or service demand within your market o Clearly defining drivers to success within your industry o Consistently monitoring key influences within your industry
o o

Third key strategy element is Internal Assessment reflects the company's ability to objectively evaluate its own strengths and weaknesses. This would include evaluating the company's management processes and how effectively it utilizes a "value chain" analysis approach. (Value Chain components are Research & Development, Production, Marketing, Sales and Customer Service)

Finance Adequate funding of key initiatives Utilizing a comprehensive pricing model Consistently performing within a range of financial goals Having a targeted long-range financial plan Employing a "Cost / Benefit" approach to resource allocation Financial plan allowing for economic or environmental disruption Financial plan allows for flexibility Employing the "If / Then" model when forming organizational strategy Research and Development o Fully integrating all appropriate departments with R&D o Maintaining a creative and innovative process o Ensuring R&D has all required resources to successfully fulfill its function Production o Fully integrating all departments to support production o Strategic partners consistently fulfill production commitments o Production process is cost-effective o Production process is flexible, fast and responsive Marketing o Coordinating all departments to support marketing o Having a clearly defined marketing plan o Branding plays a critical role o Utilizing a marketing system or database to track customer and market information o Employing an effective product / service management process o "Competitive advantage" is a key driver for all marketing decisions o Employees take pride in the ability to promote products and services
o o o o o o o o

o Monitoring the ROI of all marketing campaigns Sales / Distribution o Consistently achieving sales goals o Ensuring that sales teams / channels possess required skills to achieve plan o Ensuring that sales teams / channels are provided with the necessary information to achieve their goals o Employing a well-defined sales management process o Coordinating all departments to support our sales process o Tracking sales activity from lead generation through close Does Your Organizational Strategy Emphasize Customer Service? o Clearly defining customer service standards o Meeting or exceeding customer expectations o Measuring customer satisfaction o Managers and employees share a high commitment to achieving customer loyalty o Maintaining a customer relationship management system that provides critical service information to make the best decision o Maintaining a high rate of repeat business, customer loyalty and referrals

Organizational Strategy - Objectives, Initiatives and Goals

Objectives, Initiatives and Goals are the final element of organizational strategy and illustrate a company's ability to articulate what it wants to accomplish, how it will do it, and when it will be achieved. Included in this process are defining direction, aligning financial and human resources, instilling accountability and determining critical measurements.

Organization Strategy Needs Vital Direction o Identifying key strategic objectives o Prioritizing action items by their importance to strategic intent o Ensuring objectives are quantifiable and measurable o Those responsible for implementation participate in the strategic planning process o Plans must specify how each area will contribute to achieving strategic plan Resource Alignment o Allocating sufficient resources to achieve strategic intent o Clearly defining resources necessary for each objective o Evaluatiing individual or group capacity prior to assigning workload Organization Accountabilities o Ensuring that employees understand how their roles and responsibilities relate to strategic objectives o Holding individuals accountable for their work o Employee goals reflect accountabilities and timeliness o Employing an internal system to routinely review the status of key objectives o Measuring key financial indicators o Utilizing a uniform format to measure and report performance

P3.2
Capital Cash Flow Analysis

Cash ow is the life blood of all businesses and is the primary indicator of business health. It is generally acknowledged as the single most pressing concern of most small and medium-sized enterprises (SMEs), although even nance directors of the largest organisations emphasise the importance of cash, and cash ow modelling is a fundamental part of any private equity buy -out. In a credit crunch environment, where access to liquidity is restricted, cash management becomes critical to survival. In its simplest form, cash ow is the movement of money in and out of your business. It is not prot and loss, although trading clearly has an effect on cash ow. The effect of cash flow is real, immediate and, if mismanaged, totally unforgiving. Cash needs to be monitored, protected, controlled and put to work. There are four principles regarding cash management: 1. Cash is not given. It is not the passive, inevitable outcome of your business endeavours. It does not arrive in our bank account willingly. Rather it has to be tracked, chased and captured. weneed to control the process and there is always scope for improvement. 2. Cash management is as much an integral part of your business cycle as, for example, making and shipping widgets or preparing and providing detailed consultancy services. 3. Good cash ow management requires information. For example, need immediate access to data on: customers creditworthiness customers current track record on payments outstanding receipts suppliers payment terms short-term cash demands short-term surpluses investment options current debt capacity and maturity of facilities Longer-term projections.

4. We must be masterful. Managing cash ow is a skill and only a rm grip on the cash conversion process will yield results. Professional cash management in business is not, unfortunately, always the norm. For example, a survey conducted by the Better Practice Payment Group in 2006 highlighted that one in three companies do not conrm their credit terms in writing with customers. And many nance functions do not maintain an accurate cash ow forecast . Good cash management has a double benet: it can help you to avoid the debilitating downside of cash crises; and it can grant you a commercial edge in all your transactions. For example, Companies able to aggressively manage their inventory may require less working capital and be able to extend more competitive credit terms than their rivals.

Almost all businesses have working capital tied up in receivables and inventory. But not all of them. Many of the UKs big supermarkets chains, for example, have negative working capital. Customers pay in cash at the tills, but stock is provided by suppliers on credit, often on very generous terms. That means that at any given time, the supermarket has excess cash which can be used to earn interest or be invested in new store roll-outs, for example. Thats one reason their business model is so successful and demonstrates the importance of cash ow management.

Working capital management

Decisions relating to working capital and short term financing are referred to as working capital management. These involve managing the relationship between a firm's short-term assets and its shortterm liabilities. The goal of Working capital management is to ensure that the firm is able to continue its operations and that it has sufficient cash flow to satisfy both maturing short-term debt and upcoming operational expenses. Decision criteria By definition, Working capital management entails short term decisions - generally, relating to the next one year period - which are "reversible". These decisions are therefore not taken on the same basis as Capital Investment Decisions rather they will be based on cash flows and / or profitability. * One measure of cash flow is provided by the cash conversion cycle - the net number of days from the outlay of cash for raw material to receiving payment from the customer. As a management tool, this metric makes explicit the inter-relatedness of decisions relating to inventories, accounts receivable and payable, and cash. Because this number effectively corresponds to the time that the firm's cash is tied up in operations and unavailable for other activities, management generally aims at a low net count. * In this context, the most useful measure of profitability is Return on capital (ROC). The result is shown as a percentage, determined by dividing relevant income for the 12 months by capital employed; Return on equity (ROE) shows this result for the firm's shareholders. Firm value is enhanced when, and if, the return on capital, which results from working capital management, exceeds the cost of capital, which results from capital investment decisions as above. ROC measures are therefore useful as a management tool, in that they link short-term policy with long-term decision making. Management of working capital Guided by the above criteria, management will use a combination of policies and techniques for the management of working capital. These policies aim at managing the current assets (generally cash and cash equivalents, inventories and debtors) and the short term financing, such that cash flows and returns are acceptable. * Cash management. Identify the cash balance which allows for the business to meet day to day expenses, but reduces cash holding costs.

* Inventory management. Identify the level of inventory which allows for uninterrupted production but reduces the investment in raw materials - and minimizes reordering costs - and hence increases cash flow; see Supply chain management; Just In Time (JIT); Economic order quantity (EOQ); Economic production quantity (EPQ). * Debtors management. Identify the appropriate credit policy, i.e. credit terms which will attract customers, such that any impact on cash flows and the cash conversion cycle will be offset by increased revenue and hence Return on Capital (or vice versa) * Short term financing. Identify the appropriate source of financing, given the cash conversion cycle: the inventory is ideally financed by credit granted by the supplier; however, it may be necessary to utilize a bank loan (or overdraft), or to "convert debtors to cash" through "factoring". Financial risk management Risk management is the process of measuring risk and then developing and implementing strategies to manage that risk. Financial risk management focuses on risks that can be managed ("hedged") using traded financial instruments (typically changes in commodity prices, interest rates, foreign exchange rates and stock prices). Financial risk management will also play an important role in cash management. This area is related to corporate finance in two ways. Firstly, firm exposure to business risk is a direct result of previous Investment and Financing decisions. Secondly, both disciplines share the goal of creating, or enhancing, firm value. All large corporations have risk management teams, and small firms practice informal, if not formal, risk management. Derivatives are the instruments most commonly used in Financial risk management. Because unique derivative contracts tend to be costly to create and monitor, the most cost-effective financial risk management methods usually involve derivatives that trade on well-established financial markets. These standard derivative instruments include options, futures contracts, forward contracts, and swaps.

Valuation of financial assets is done using one or more of these types of models: 1. Absolute value models that determine the present value of an asset's expected future cash flows. These kinds of models take two general forms: multi-period models such as discounted cash flow models or single-period models such as the Gordon model. These models rely on mathematics rather than price observation. 2. Relative value models determine value based on the observation of market prices of similar assets. 3. Option pricing models are used for certain types of financial assets (e.g., warrants, put options, call options, employee stock options, investments with embedded options such as a callable bond) and are a complex present value model. The most common option pricing models are the BlackScholes-Merton models and lattice models. Common terms for the value of an asset or liability are fair market value, fair value, and intrinsic value. The meanings of these terms differ. For instance, when an analyst believes a stock's intrinsic value is

greater (less) than its market price, an analyst makes a "buy" ("sell") recommendation. Moreover, an asset's intrinsic value may be subject to personal opinion and vary among analysts. Valuation models based on the discounted cash flow concentrate on valuation by reference to one of several expected cash-flow proxies. These include dividends, cash flow and accounting earnings. In a perfect world these variables should produce identical results; however the empirical examination provides varying results because different variables suggest different estimates of expected future cash flows and, thus, different market value. The most basic of these models can be written as follows.

1 (1+ )

(1+ )

2 +

3 (1+ )

3 + .+

(1+ )

Where: P is the price of the stock; CFi is the expected cash flow in period I; r is a constant discount rate of investors.

Capital Investment

The term Capital Investment has two usages in business. Firstly, Capital Investment refers to money used by a business to purchase fixed assets, such as land, machinery, or buildings. Secondly, Capital Investment refers to money invested in a business with the understanding that the money will be used to purchase fixed assets, rather than used to cover the business' day-to-day operating expenses.
Objectives of Capital Investment

There are various investment avenues in the market today. Nevertheless, the main objectives behind any kind of capital investment remains more or less the same growth, income and safety. Investors can have more than one of these objectives in mind while investing but success usually comes with the expense of one of these objectives. Safety: Safety of our capital investment depends largely on the type of investment. Even though there is no hundred percent safe investment, government issued securities, corporate bonds etc. are some that fall in the relatively safe categories. These securities can usually preserve your capital and at the same time provide you with a specific return rate. Income: A certain amount of safety would have to be sacrificed if income from capital investment is the main aim. Increase in yields is associated with a certain degree of risk, thus as yield increases, safety decreases. Safest investments in the markets are usually the ones that

have the lowest income returns. It is generally seen that all investors look for income generation too in their portfolios. Growth: Capital gain on the capital investment comprises growth of capital and this is different from yield. Capital gains occur when security bought is sold at a higher price than its original purchase price. On similar lines, if security is sold at a lower price, capital loss occurs. Thus, long term growth occurs at the expense of ongoing investment returns. Apart from these three main objectives, there can be secondary objectives too while considering capital investment. These usually include tax minimizations and a certain degree of liquidity. Capital investment that give tax exemptions can reduce overall income tax burden. Likewise, liquidity of investment is highly desired by investors. Many investments are illiquid and cannot be converted to cash immediately. Shares are relatively the most liquid investment since they can be sold in a day or two. Thus capital investment with any of the above mentioned five objectives usually becomes a success when one of two of the objectives are sacrificed for the benefits of the others. Mostly, income and safety have to be shown the way out if growth is desired, thus most of the investment portfolios should be guided by one predominant objective. Other objectives would occupy less significant positions in the investment scheme of things. Hence investments must be planned accordingly, with appropriate weightings assigned to each objective. The choice of objective should largely depend on factors like:

temperament of investor stage of life family situation marital status income etc.

The investor would be able to find the right mix of investment opportunities from the myriad of avenues available in the market. The investor should keep in mind to do ample research and due diligence prior to investing. The choice of the right kind of investment in accordance with all variables in connection with investor is vital for the success of any investment venture. The effort spent in finding, deciding and studying the various investment opportunities would pay off in the long run.

P3.3
Variable overheads, fixed overheads, fixed overheads spending, fixed overheads volume and additional issues related to the volume deviates cost calculations.

Variable Overhead
The indirect costs of operating a business that fluctuate somewhat with the level of business activity, but are incurred even if business activity is minimal. While most overhead costs such as rent, salaries and insurance are typically fixed, overhead costs that increase with higher business activity and decrease with lower business activity are termed as variable overhead. These usually consist of indirect material, indirect labor and other costs that cannot be directly allocated to a specific product, such as expenses for utilities and equipment maintenance. The formulas for splitting the flexible budget variance for variable overhead into a price variance and an efficiency variance are the same as the formulas for direct materials . The price variance for variable overhead is called the variable overhead spending variance:

Spending variance ( PV) = AQ x (AP SP)

Efficiency variance (EV) = SP x (AQ SQ )

Where AP is the actual overhead rate used to allocate variable overhead, and SP is the budgeted overhead rate. The Qs refer to the quantity of the allocation base used to allocate variable overhead, so that AQ is the actual quantity of the allocation base used during the period, and SQ is the standard quantity of the allocation base. The standard quantity of the allocation base is the amount of the allocation base that should have been used for the actual output units produced. Cost Variances for Fixed Overhead Whereas the cost variances for direct materials, direct labor, and variable overhead all use the same two formulas, the cost variances for fixed overhead are different, and do not use these formulas at all.

Also, whereas cost variances for direct materials, direct labor, and variable overhead can be calculated for individual products in a multi-product factory, cost variances for fixed overhead can only be calculated for the factory or facility as a whole.

The Fixed Overhead Volume Variance: The fixed overhead volume variance is also called the production volume variance, because this variance is a function of production volume. The volume variance attaches a dollar amount to the difference between two production levels. The first production level is the actual output for the period. The second production level is the denominator-level concept in the budgeted fixed overhead rate, expressed in units. As discussed in the previous chapter, there are two common choices for this denominator: Budgeted production Factory capacity

volume variance
The interpretation of the volume variance depends on which of these two denominators are used, but in either case, the production volume variance is the difference between budgeted fixed overhead (a lump sum), and the amount of fixed overhead that would be allocated to production under a standard costing system using this fixed overhead rate.

If the variance relates to the sale of goods, the variance is called the sales volume variance, and the formula is: (Actual quantity sold - Budgeted quantity sold) x Budgeted price If the volume variance relates to direct materials, the variance is called the material yield variance, and the formula is: (Actual unit quantity consumed - Budgeted unit quantity consumed) x Budgeted cost per unit If the volume variance relates to direct labor, the variance is called the labor efficiency variance, and the formula is: (Actual labor hours - Budgeted labor hours) x Budgeted cost per hour If the volume variance relates to overhead, the variance is called the overhead efficiency variance, and the formula is:

(Actual units consumed - Budgeted units consumed) x Budgeted overhead cost per unit
As we can see from the various variance names, the term "volume" does not always enter into variance descriptions, so you need to examine their underlying formulas to determine which ones are actually volume variances. Every volume variance involves the calculation of the difference in unit volumes, multiplied by a standard price or cost. The standard costs for products that are used in a volume variance are usually compiled within the bill

of materials, which itemizes the standard unit quantities and costs required to construct one unit of a
product. This usually assumes standard production run quantities. The standard costs for direct labor that are used in a volume variance are usually compiled within a labor routing, which itemizes the time required for certain classifications of labor to complete the tasks needed to construct a product. We can use following example to understand discussed topic:

Standard cost of Product A $ Materials (5kgs x $10 per kg) 50 Labour (4hrs x $5 per hr) 20 Variable o/hds (4 hrs x $2 per hr) 8 Fixed o/hds (4 hrs x $6 per hr) 24 102 Budgeted results Production: 1,200 units Sales: 1,000 units Selling price: $150 per unit ACTUAL Results Production: 1,000 units Sales: 900 units Materials: 4,850 kgs, $46,075 Labour: 4,200 hrs, $21,210 Variable o/hds: $9,450 Fixed o/hds: $25,000 Selling price: $140 per unit

1. Variable cost variances Direct material variances

The direct material total variance is the difference between what the output actually cost and what it should have cost, in terms of material. From the example above the material total variance is given by:

$ 1,000 units should have cost (x $50) 50,000 But did cost 46,075 Direct material total variance 3, 925 (F) It can be divided into two sub-variances

The direct material price variance

This is the difference between what the actual quantity of material used did cost and what it should have cost. $ 4,850 kgs should have cost (x $10) 48,500 But did cost 46,075 Direct material price variance 2,425 (F)

The direct material usage variance

This is the difference between how much material should have been used for the number of units actually produced and how much material was used, valued at standard cost 1,000 units should have used (x 5 kgs) 5,000 kgs But did use 4,850 kgs Variance in kgs 150 kgs (F) Valued at standard cost per kg x $10 Direct material usage variance in $ $1,500 (F) The direct material price variance is calculated on material purchases in the period if closing stocks of raw materials are valued at standard cost or material used if closing stocks of raw materials are valued at actual cost (FIFO).

Direct labour total variance

The direct labour total variance is the difference between what the output should have cost and what it did cost, in terms of labour. $ 1,000 units should have cost (x $20) 20,000 But did cost 21,210

Direct material price variance

1,210 (A)

Direct labour rate variance

This is the difference between what the actual number of hours worked should have cost and what it did cost. 4200hrs should have cost (4200hrs x $5) $21000 But did cost $21210 Direct labour rate variance $210(A)

The direct labour efficiency variance

The is the difference between how many hours should have been worked for the number of units actually produced and how many hours were worked, valued at the standard rate per hour. $ 1,000 units should have taken (x 4 hrs) 4,000 hrs But did take 4,200 hrs Variance in hrs 200 hrs Valued at standard rate per hour x $5 Direct labour efficiency variance $1,000 (A) When idle time occurs the efficiency variance is based on hours actually worked (not hours paid for) and an idle time variance (hours of idle time x standard rate per hour) is calculated.

2. Variable production overhead total variances

The variable production overhead total variance is the difference between what the output should have cost and what it did cost, in terms of variable production overhead. $ 1,000 units should have cost (x $8) 8,000 But did cost 9,450 Variable production o/hd expenditure variance 1,450 (A)

The variable production overhead expenditure variance

This is the difference between what the variable production overhead did cost and what it should have cost

$ 4,200 hrs should have cost (x $2) 8,400 But did cost 9,450 Variable production o/hd expenditure variance 1,050 (A)

The variable production overhead efficiency variance

This is the same as the direct labour efficiency variance in hours, valued at the variable production overhead rate per hour. Labour efficiency variance in hours 200 hrs (A) Valued @ standard rate per hour x $2 Variable production o/hd efficiency variance $400 (A)

3. Fixed production overhead variances

The total fixed production variance is an attempt to explain the under- or over-absorbed fixed production overhead. Remember that overhead absorption rate = Budgeted fixed production overhead Budgeted level of activity

If either the numerator or the denominator or both are incorrect then we will have under- or over-absorbed production overhead.

If actual expenditure budgeted expenditure (numerator incorrect) expenditure variance If actual production / hours of activity budgeted production / hours of activity (denominator incorrect) volume variance. The workforce may have been working at a more or less efficient rate than standard to produce a given output volume efficiency variance (similar to the variable production overhead efficiency variance). Regardless of the level of efficiency, the total number of hours worked could have been more or less than was originally budgeted (employees may have worked a lot of overtime or there may have been a strike and so actual hours worked were less than budgeted) volume capacity variance.

4. The fixed production overhead variances are calculated as follows: Fixed production overhead variance

This is the difference between fixed production overhead incurred and fixed production overhead absorbed (= the under- or over-absorbed fixed production overhead) $ Overhead incurred 25,000 Overhead absorbed (1,000 units x $24) 24,000 Overhead variance 1,000 (A)

Fixed production overhead expenditure variance

This is the difference between the budgeted fixed production overhead expenditure and actual fixed production overhead expenditure $ Budgeted overhead (1,200 x $24) 28,800 Actual overhead 25,000 Expenditure variance 3,800 (F)

Fixed production overhead volume variance

This is the difference between actual and budgeted production volume multiplied by the standard absorption rate per unit. $ Actual production at std rate (1,000 x $24) 24,000 Budgeted production at std rate (1,200 x $24) 28,800 4,800 (A)

Fixed production overhead volume efficiency variance

This is the difference between the number of hours that actual production should have taken, and the number of hours actually worked (usually the labour efficiency variance), multiplied by the standard absorption rate per hour. Labour efficiency variance in hours 200 hrs (A) Valued @ standard rate per hour x $6 Volume efficiency variance $1,200 (A)

Fixed production overhead volume capacity variance

This is the difference between budgeted hours of work and the actual hours worked, multiplied by the standard absorption rate per hour Budgeted hours (1,200 x 4) 4,800 hrs Actual hours 4,200 hrs Variance in hrs 600 hrs (A) x standard rate per hour x $6 $3,600 (A) The fixed overhead volume capacity variance is unlike the other variances in that an excess of actual hours over budgeted hours results in a favourable variance and not an adverse variance as it does when considering labour efficiency, variable overhead efficiency and fixed overhead volume efficiency. Working more hours than budgeted produces an over absorption of fixed overheads, which is a favourable variance.

5. Selling price variance

The selling price variance is a measure of the effect on expected profit of a different selling price to standard selling price. It is calculated as the difference between what the sales revenue should have been for the actual quantity sold, and what it was. $ Revenue from 900 units should have been (x $150) 135,000 But was (x $140) 126,000 Selling price variance 9,000 (A)

Sales volume variance

The sales volume variance is the difference between the actual units sold and the budgeted quantity, valued at the standard profit per unit. In other words it measures the increase or decrease in standard profit as a result of the sales volume being higher or lower than budgeted. Budgeted sales volume 1,000 units Actual sales volume 900 units Variance in units 100 units (A) x standard margin per unit (x $ (150 102) ) x $48 Sales volume variance $4,800 (A)

P4.1
Work breakdown structure (WBS) The WBS is a deliverable-oriented hierarchical decomposition of the project work that represents the total scope of the project. In other words, if it is not included in the WBS, it will not be delivered. A WBS includes the following: Project management artifacts such as plans, procedures, processes, and standards The project deliverables The project office support deliverables

A WBS presents, at a project level, the end products, services, or results of the project for which the work needs to be performed. A component at the lowest level of a WBS is called a program package. A program package is a management interface between program management and project management. Technically speaking, a program package is a management control point where the program managers control ends and a project managers control starts. That means the program work decomposition should stop at the level of control required by the program manager. This will typically correspond to the first or the second level in the WBS of each constituent project.

WBS

List of Activities

Activity
T1 T2 T3 T4 T5 T6 T7 T8 T9 T10 T11 T12 T13 T14 T15 T16 T17

Duration (weeks)
4 3 7 7 8 7 8 8 12 15 10 6 20 10 4 8 10

Predecessor
T1,T2 T3 T2, T1,T2,T3,T4 T5 T6 T8 T9 T10 T11 T12 T13 T14 T15,T13 T16

P4.2
Network diagram

Finding the critical path using the network diagram

By looking at the diagram we can see that there are 6 different possible paths which take 113 weeks, 109 weeks, 96 weeks, 79 weeks, 78 weeks and 59 weeks. As we should select the longest path as the critical path, below shown path can be taken as the critical path which takes 113 weeks to end the whole project.